Axalta Coating Systems Ltd (AXTA) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Axalta Coating Systems second quarter 2015 earnings conference call. Presenting today will be Charlie Schafer, Chairman and Chief Executive Officer, and Robert Bryant, Executive Vice President and Chief Financial Officer. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions). Today's call is being recorded. Replays of this conference will be available through August 18, 2015. Those listening after August 18, 2015 should please note that the information provided will not be updated, and it is possible the information will no longer be current. At this time, I will turn the call over to Chris Mecray, Vice President of Investor Relations for Axalta Coating Systems, for a few brief legal notices. Please go ahead.

Thank you and good morning, everyone. This is Chris Mecray, Axalta's VP of Investor Relations. We appreciate your interest in Axalta, and welcome you to our second quarter 2015 financial results conference call. Joining us today are Charlie Shaver, Chairman and CEO, and Robert Bryant, EVP and CFO. This morning we announced our 2Q 2015 financial results and posted a slide presentation to the Investor Relations section of our website at Axaltacs.com, which we will be referencing during this call.

Both prepared remarks and discussion during this call may contain forward-looking statements reflecting the Company's current view of future events, and the potential effects on Axalta's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ materially from those forward-looking statements. The Company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures. The Appendix to the presentation, which again is available on our website, contains reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information regarding forward-looking statements and non-GAAP financial measure, please refer to our filings with the SEC. I would like to now turn the call over to Charlie. Go ahead.

Thanks, Chris, and good morning to everyone. Thanks for joining us today. We are pleased to be sharing our second quarter 2015 results with you. I will begin with some of the highlights from the quarter and a brief update on our strategic focus and our progress to date. I will then turn it over to Robert, who will provide a little more detail on our results, and also our updated full year outlook. We will then open up the line to take any of your questions.

If you would refer to slide 3 of our presentation. I am pleased to be able to share our solid results from the second quarter of 2015. These results mark the fourth set of financials we have released as a public company, and the overall picture for Axalta remains one of steady progress towards our operating and financial goals.

On the sales front, from a financial perspective, our second quarter was on plan, net sales increased by 8% over last year's second quarter including negative foreign currency translation impact of about 11%. This puts us on track relative to our revenue guidance for the year, and volume growth in the second quarter was nearly 5%, with a positive contribution for both segments, consistent overall with the first quarter result, and reflected our expectations of some shift towards growth acceleration from our transportation segment as the year continues to progress.

In the area of global demand we believe our sales result is a good reflection of continued solid demand for our products across each of our end markets. The consumer related economy remains positive in North America and firming a bit in EMEA, at least for western Europe. Of course the world isn't uniform economically strong either today. We face headwinds as were the case in the first quarter and in 2014 in certain markets such as Russia and much of Latin America. We do believe our results and our demonstrated ability to grow even in this unsteady global environment underlines our success to date, and working toward that goal of refocusing Axalta on profitable growth as an independent company.

It is certainly true in Asia Pacific, where we see broader economic indicators showing some slowing, but yet our positioning and our success in winning businesses over the last few years continues to enable growth, both year-to-date and in our updated outlook. We grew volumes in Asia Pacific at nearly 12% in the second quarter, including over 25% in our transportation coatings group. In spite of a Chinese auto market that slowed from double digit growth rate to lower single digits in recent months, we continue to post solid growth as a result of our successful timely investments in capacity in that country, our strong product set and our reputation for quality products, and perhaps to a degree our flexibility to grow from a lower market share position relative to other regions, among other reasons.

On the subject of EBITDA, the Axalta team also continues to focus squarely on controlling and reshaping our cost structure to remain competitive. This was certainly reflected in our second quarter profits, with reported adjusted EBITDA of over $255 million, ahead of our target for the quarter, and up 16% from prior year quarter. Our profit growth was accompanied by margin expansion with an adjusted EBITDA margin of 23.4%, up from 19.6% in the prior year second quarter. This was driven in part by volume growth but also by good, steady progress in operating productivity and cost reduction initiatives. EBITDA margin was also favorably impacted by pricing actions taken during the second quarter, as a result of the expected devaluation of certain Latin America jurisdictions, which temporarily outpaced the negative impacts of that translation.

Finally, along with our progress in cost containment driven by our two initiatives, we are also benefiting from the overall adoption of metrics based management practices, which we believe are already making a significant impact on our behavior, and certainly our results across the Company. We have also updated our annual guidance from last quarter, narrowing the range slightly by increasing the lower end of the range from $860 million to $870 million for the adjusted EBITDA, with the upper end of the range steady at around $900 million. This reflects on one hand a higher level of confidence in our results, now that we are just past the midpoint of the year, but also on the other hand, an awareness of the choppy global macroeconomic picture, and ongoing risk of demand levels and execution. Clearly foreign currency remains volatile as we go through this year. We have provided an updated look at our assumptions which result in modest changes to our assumption on FX impact.

Regarding product demand, we continue to see a generally supportive backdrop for each of our segments and our end markets. That being said, we also acknowledge that certain countries and markets have slowed, and our second half assumptions also reflect that. We do believe we are fortunate to be in a position to reconfirm those goals, with a positive revision to the target profit range.

We continue to be on plan with our capital projects and our productivity investments in the second quarter. I just recently attended the ribbon cutting ceremony in our Wuppertal, Germany, waterborne coatings facility expansion in June, and our plans to be operational there in the second half of the year are on track. Meanwhile, our new Jiading, China, waterborne facility continues to perform well in meeting new customer schedules for new coatings demand, and our Mexico expansion is also on track for the end of this year. Overall, our capital spend in the first half is on schedule, and we continue to work daily in our operations team to apply capital in a long-term list of productivity projects that will help us to continue to realize our cost and productivity goals.

Turning to slide 4 on the subject of delivering on our goals, I do think it is worth taking a moment reviewing our progress to date with respect to our yearly goals. Overall we remain encouraged by our current market and product position, and we continue to execute on our plan in a disciplined way, with the goal of creating shareholder value through profitable revenue growth, strong cash generation, and total shareholder return based capital allocation.

We have highlighted a few milestones for you from the second quarter. In terms of revenue growth, our volume acceleration remained on plan through the first half, and we expect this to continue, driven by the ramp-up that we have talked about in transportation coatings -- to transportation coatings related businesses that we've previously discussed on these calls.

The volume growth we recorded in the second quarter notably came from positive volumes in all regions and all end markets. North America demand remains solid and the highlight of the quarter, but we also point to strong growth rates in Asia Pacific of 12% overall, and again over 25% in our transportation coatings, as evidence that our plan remains on track to expand our business in emerging markets, where historically we lacked the capacity and the capability to serve and grow.

We do expect to see ongoing growth in the region for the balance of the year, even at the current lower market growth rates, as widely reported by the press and auto industry. Though we don't profess to be unaffected by the slowdown, our planned benefits from our specific market position and production based on new business we believe will continue to serve us well in the near term.

Taking a moment to look at end markets, in refinish our goals remain steady to continue to focus on growing our emerging market presence from a strong and stable base. We are also using product extension of mainstream product offerings to grow globally. In the second quarter for example, we had solid new business wins in the multishop operator customer segment in North America, as this body shop consolidation continues. On the industrial side of the business, our project increased growth saw some progress in the second quarter. We continue to apply discipline to extending our market presence in new niches, through new product launches and enhanced sales and marketing efforts across the region.

In the light vehicle segment, Axalta is working to service a solid base of customer demand and meet new expectations for all of our new product launches through the course of this year and into 2016. We are confident of our technology, our innovation, and we are committed to continuing to service those customers with superior service and reliability, as we are growing in both the core and emerging markets.

On the commercial vehicle side of the business, we are pleased that the continued robust demand in the core North America markets, and that continues to demonstrate great progress as we go through this year. We've also shown excellent progress in adding growth in other regions including China, where we grew over 20% against a declining overall truck market, as we work up from a relatively small base of business.

With regard to Fit For Growth and the Axalta Way, our two initiatives for productivity, we are also pleased with the progress there. Both programs are on track to meet our expectation of $200 million in run rate savings by the end of 2017, and we continue to see Axalta Way savings begin to accrue in the second half of 2015, on its way to building into the following years. As we continue our capital priorities we will continue to strive for balance between making appropriate, high return organic investments in the business, to benefit from applying capital to our own business as a standalone, as well as achieving our goal of reducing debt leverage on the balance sheet.

At the end of the second quarter, our last 12 months net debt to adjusted EBITDA was 3.7 times, down from 4 times the last quarter. In the second half we would expect to be able to deliver solid progress on debt reduction, given expectations for additional positive free cash flow in the business.

I have commented in the past about our interest in evaluating M&A opportunities, even if it isn't the top priority for our capital allocation at the moment. I am pleased to say that we did complete one small bolt-on acquisition in July, acquiring a distributor in the Benelux area called Metalak. This is a small firm that we have an existing business through refinished products, and the result of this acquisition is we added certain products in our industrial portfolio, and a really great sales team. This deal was a clear strategic fit for us, with limited risk and outside of the broadly marketed deal auction process. Though not a large transaction, it does serve an example of our flexibility to close deals that make sense for the customers, our Company, and shareholders alike.

I would like to now turn the call over to Robert, who will walk us through Axalta's financial results in more detail, as well as a review of our updated guidance. Thank you, Robert.

Thanks, Charlie, and good morning everyone. Please turn to slide 5 of our earnings presentation, where you will find our Q2 consolidated results. For the second quarter of 2015, constant currency net sales increased 8.2% over the prior year, driven primarily by volume growth, as well as select average selling price increases. Foreign currency translation impacted reported net sales by 11.1% in the quarter, mainly from the devaluation of the euro and currencies in certain Latin America jurisdictions. On a sequential basis, the currency impact was nearly even with the last quarter overall.

Axalta sales volumes on a consolidated basis grew 4.8% over Q2 2014, reflecting growth across all regions and all segments. In North America volumes were up 5%, led primarily by transportation coatings growth. In Asia Pacific, volumes were up 12%, also driven by solid growth of over 25% in transportation coatings in the region. Latin America, in spite of a generally constrained regional economic demand environment, saw volumes increase 4%, led by refinish and continued solid commercial vehicle production. EMEA volumes increased 2% from moderate expansion in most end markets, and in spite of ongoing headwinds from Russia and Eastern Europe. Excluding Russia and eastern Europe, our EMEA net sales increased 5.6% in Q2 excluding FX impacts.

With a positive price contribution in the quarter of 3.4% overall, we see that overall net sales were delivered largely from incremental customer demand in each segment, as well as our continued focus on globalization of products and strong execution across each end market. Second quarter adjusted EBITDA increased 15.6% year-over-year to $255 million from $221 million, driven largely by strong volumes and improved mix, as well as price benefits and lower fixed manufacturing costs from our ongoing productivity initiatives. Variable margins benefited from moderate raw material cost relief in Q2, as we signaled in our prior quarter, given prices in select commodity oriented inputs. Adjusted EBITDA margin expanded by a substantial 380 basis points from last year to 23.4% from 19.6%, primarily driven by volume and price drop through, as well as some positive effect from cost improvements and productivity enhancement.

Moving on to our Q2 2015 performance coatings results on slide 6, constant currency net sales in our performance coatings segment increased 8.2% year-over-year, driven by growth in all of our regions. Volumes were up 2% for the quarter also from all regions, though EMEA demand continued to be held back partly by a notably weak Russian and Eastern European demand. Average selling prices were up a robust 6.2%, including some benefit from active price adjustments in high inflation jurisdictions. The volume and price increases were offset by 12.1% unfavorable currency exchange translation, again primarily driven by the euro and currencies in Latin America.

Net sales in our refinish end market grew a strong 10% year-over-year excluding the negative impact of foreign currency translation, led by results in Latin America. Net sales in our industrial end market increased by 3.8% year-over-year, excluding foreign exchange translation, exhibiting modest sequential acceleration from the first quarter, and led by volume growth in North America and EMEA. Performance coatings generated adjusted EBITDA of $162 million for the second quarter, up an impressive 19% year-over-year. Adjusted EBITDA margin jumped 480 basis points to 25.4% on the drop through of volume, price and cost improvement from 2014. Notably, we do not expect this margin level to be sustained near term, as the quarter did benefit from some favorable timing of net sales from earlier expectations of a smoother level of overall business performance between the middle quarters of the year. Our new expectation is reflected in our updated guidance for Q3, which assumes more moderate volume, price and margin performance, as we progress toward our full year targets, which overall remain achievable in our expectations.

Switching now to Q2 2015 transportation coatings results. Before foreign currency translation impacts of 9.5%, net sales in our transportation coatings segment increased 8.1% year-over-year in the second quarter. Net sales on a constant currency basis were led by volume growth in North America and Asia Pacific, from new business and growth in vehicle production for our customers. Notably, Asia-Pacific volume growth in the quarter up over 25%, in line with our previously communicated expectation of strong sequential acceleration, as new launches continue for new business with key customers in the region, and particularly in China. Although we have taken note of the slowdown in overall new vehicle production from western suppliers in China in recent months, we expect global volume growth in the transportation coatings segment to build, along with the introduction of new models and continued vehicle production by our customers, on lines where we have secured new coatings positions.

Net sales in our light vehicle end market increased a solid 5.5%, excluding foreign currency translation in Q2, including over 25% volume growth in Asia Pacific, and ongoing solid growth in North America. Net sales in our commercial vehicle end market increased an impressive 17.9%, excluding foreign currency translation, due to strong volumes in all regions in both heavy duty truck and select other vehicle fleets.

The transportation coatings segment generated adjusted EBITDA of $93 million in the second quarter, an increase of 10.7%, driven by the growth in net sales and lower fixed and variable manufacturing costs, as we begin to see the benefits from our operational improvement initiatives including some procurement savings. We did continue to see a moderate drag from the Jiading China facility startup process. Segment EBITDA margin in Q2 grew by 220 basis points to 20.5%.

Moving on to our cost optimization initiatives on slide 8. As with the last quarter, we are pleased that our progress on the cost reduction and productivity initiatives are well on track. We continue to expect to book combined run rate savings of $200 million by the end of 2017, between the programs Fit for Growth and the Axalta Way. Fit for Growth, which began in late 2014, continues to show solid progress, and we are confident in our forecast of relatively linear savings to be accomplished over the next several years.

Savings in the second quarter reflected this goal, and operating progress included ribbon cutting at the new expanded waterborne coatings facility in Wuppertal, Germany, as well as certain other operations consolidations to enhance overall productivity in EMEA. The Axalta Way, our new business process, is a comprehensive initiative focusing on creating a Best of Class organization and ultimately driving enhanced and sustainable returns on investment for our shareholders. To achieve our $100 million savings and productivity targets, we continue the process of detailed planning and execution. The impact of Axalta Way in Q2 was still a net cost headwind, due to the impact of certain consultant costs and severance, but we expect to begin to see a ramp-up in savings during the second half, with moderate savings to be achieved overall in the amount of $10 million to $15 million for 2015.

Looking at the buckets of opportunity in The Axalta Way program for the first three years, we see clear opportunity to reduce costs across nearly all operating and functional areas of the Company, with notable individual buckets to include commercial practices, procurement, operations, and SG&A. We have completed the detailed scoping work on commercial practices in North America with the help of consultants, and are confident in our opportunity to streamline our commercial terms across an organization that was formerly managed on a decentralized and almost purely regional basis, with few metrics applied across these managerial boundaries. This effort includes more consistent pricing terms, sales force management and other initiatives aimed at reducing price leakage across a diversified global organization that serves more than 130 countries.

Our global procurement organization also continues to pursue opportunities to address its business efficiency opportunities, including efforts to reduce spend in both direct and indirect categories. We are confident in our goal of achieving significant savings from addressing our supply chain operations on a global basis, migrating best practices among the regions, reducing our spend of sole-sourced buys and direct procurement inputs, and managing the overall process with a more metrics based approach than has been done in the past.

As we suggested on our last call, we seek to provide some color on the magnitude of costs and savings from The Axalta Way program. We are confident in our $100 million overall three-year target, and have noted that our second half 2015 goal of savings is approximately $10 million to $15 million. Regarding our one-time costs and the EBITDA to adjusted EBITDA bridge provided in our release, and commented on slide 8, we note that transition related expenses associated with establishing Axalta as an independent entity were essentially completed in 2014, as expected and communicated last quarter. That said, we identified several items that are one-time in nature, and related to our new productivity programs and other matters. Our costs associated with the productivity initiatives totaled $22 million in the second quarter, with the bulk of these costs related to The Axalta Way for consultant and severance costs.

Looking at some key balance sheet items on slide 9, as of June 30 cash and equivalents totaled $308 million, while our total reported debt was $3.6 billion, resulting in a net debt balance of $3.3 billion. Our net debt to last 12 months adjusted EBITDA ratio is now 3.7, times down from 4 times last quarter. The figure on the right side illustrates our deleveraging trend over the past several quarters. Our expectation continues to be for solid free cash flow in 2015, and we have reiterated our annual working capital assumptions set out in March.

Free cash flow in the second quarter improved as expected to $79 million, including CapEx of $25 million, which is on target for our annual spend of $150 million. Regarding our capital allocation and leverage targets, we will continue to focus the majority of our free cash flow on debt paydown, and seek to reduce our leverage ratio to 2.5 to 3 times before any significant consideration of changing our capital allocation focus. On the way to this lower balance sheet leverage target, we continue to invest in substantial capital on organic investments with solid IRRs, as reflected in our CapEx guidance of $150 million, including $90 million of growth and productivity spend over and above our anticipated $16 million in maintenance CapEx needs. We remain satisfied with the range and opportunity of such products, which offer compelling total shareholder return, based on our projections.

Turning to slide 10. As per our earlier comment, we intend to provide annual guidance and then update it on a quarterly basis. Given that we are halfway through the year, and remain on target for our goals overall, we are favorably tightening the range of adjusted EBITDA, and we are pleased to maintain the other target metrics for the year. As a result, excluding foreign currency impacts, 2015 net sales are expected to grow 5% to 7% over last year, though we expect slightly greater impact from FX, and reported net sales are thus expected to decline low to mid single digits. Our constant currency growth is still expected in all regions and all end markets, driven by volume growth from commercial initiatives launched in 2014, and selective price increases within our performance coatings segment in particular.

Transportation coatings is expected to benefit in volume growth from the new vehicle coatings positions previously announced, and in spite of certain country-specific demand reductions, such as in Brazil, and moderation of broad production rates in China. We expect to generate adjusted EBITDA of $870 million to $900 million, with a corresponding EBITDA margin of approximately 20%. This is up from a range of $860 million to $900 million mentioned previously.

We have also noted a range of expected adjusted EBITDA for Q3 specifically. We expect Q3 adjusted EBITDA to fall in a range of 23% to 25% of estimated full year adjusted EBITDA. We wanted to clarify that we do not expect the remainder of the year to fall out as even in terms of sequential phasing of Q3 and Q4, given what we regard as a certain amount of earnings benefit that we experienced in Q2 associated with timing factors in the normal course of business.

Other model expectations remain consistent with the prior quarter communication. We expect our normalized effective tax rate to be between 27% and 29% of pretax earnings, capital expenditures to be approximately $150 million, and net working capital to be in the range of 13% to 15% of net sales, excluding unusual items.

From a cash perspective, again, we have $95 million in transition related severance and one-time IT related expenses to be included in 2015 cash uses, the largest of which is approximately $50 million in remaining severance payments. This was previously noted. We also have some incremental cash headwind coming from The Axalta Way severance costs that we have charged in Q2, as noted in our release. This concludes our prepared remarks. We would be pleased to answer any questions you may have.

Operator, will you please now open the lines for Q&A.

Thank you. (Operator Instructions). Our first question is from Ramanan Sivalingam from Deutsche Bank. Please proceed with your question.

Good morning, guys. A quick question on price, very strong performance, when you look at Q2 especially versus Q1. Can you talk through to the drivers of that? Was it predominately FX related, or is there organic price in there?

Yes, this is Robert, as we commented last quarter, typically our average selling prices increase each year due to the introduction of higher value added new products, technological innovation and process efficiencies our products can create for our customers. But the quarterly cadence of those price increases can vary for a whole host of reasons, including changes in the price adjustment calendar, mix of regional revenue, mix of end market revenue, timing differences between devaluation and price increases in higher inflation countries, and of course product mix itself.

In particular with regard to Q2, we experienced higher average selling prices actually in three out of our four regions, including certain high inflation countries where a larger than normal price increases were necessary to offset internal inflation that had accumulated during part of Q1 as well as Q2, and this was consistent with our past business practices.

Got it, that is very helpful. European volumes looked particularly strong, particularly X Russia, curious to know what you are seeing early in Q3 there. Is Russia getting better or are you seeing similar trends overall?

This is Charlie. As we had noted in first quarter, we actually saw the year get off to a little bit of a slow start in January and February, but we have seen sequential improvement really since then. I would say we've come through the second quarter, certainly western Europe and southern Europe have kind of led the way in recovery, and I would say pretty steady right now. We are real pleased with the way the year is going, pretty consistent with plan. And again, after having a little bit of a slow start early in the year, I think things certainly seemed to have settled down, and underlying customer demand seems to be good.

That is very helpful. Thank you.

Thanks, Ram.

Thank you. Our next question today comes from Jeff Zekauskas, JPMorgan. Please proceed with your question.

Hi, good morning. Of your $200 million in eventual cost savings, how much comes from employee reduction?

We have several buckets of the $200 million, and in terms of overall rationalization of our operations, Jeff, whether that is physical assets or whether it is work force, it is a component, but it is not the largest component.

Okay. And then are there any areas where the prices are sequentially down? Or are there any areas where you expect prices to be sequentially down in the third quarter?

From a market perspective as well as what we are seeing in terms of our pricing, we don't have any expectations of that.

Great. Thank you so much.

Thanks, Jeff.

Our next question today is coming from Bob Koort, Goldman Sachs. Please proceed with your question.

Thanks, gentlemen. Good morning. I thought I heard you say I found curious, which was that Latin America was leading the refinish volumes during the quarter, and I was wondering if you could just maybe remind us of what sensitivity you typically see in the refinish market to broader economic conditions?

We had a strong performance by our Latin America team across the region. And again, I think we highlighted in the first quarter some of the seasonal or situational factors that led to Q1 not being as strong as we had expected, in particular in the refinish business, and I think we saw some of that volume, and some of that demand come back in the second quarter.

Bob, this is Charlie. Just to add on that, I think Mexico continues to be a good country for us. And even though we have a fairly dim view on Brazil as far as OEM and overall industrial GDP, clearly we are seeing our industrial and refinish businesses do well down there.

Charlie, I'm sure you have sensed maybe as you have talked with investors, there tends to be some growing angst about what is happening in China, but it appears that, based on loading of new plants, you are doing just fine. I'm wondering on the refinish side, as the economy maybe slows a little bit or the consumers there are a little more cautious, will that affect your business at all?

I think you are correct on the China OEM. I think on one hand, on the OEM side, the China slowdown as far as new build on cars, that's been coming over the last year or two, so we had kind of factored some of that into our plans this year. And as we said in the comments, as we are not unaffected by that, I think overall our plans today pretty much contemplated the mix between existing business and new business.

On the refinish side and certainly in China, you still have got 24 million new vehicles being pumped into the refinish market there, with a lot of those being more mainstream and premium segment cars. So we certainly, at least up to this point, have not seen any falloff in refinish -- in the refinish marketplace there. Again, we grow from a smaller base there than we do in our OEM business, but we have seen dealers talking about overall cash management, dealer inventory; they're dealing with all of those issues that tangentially could affect some of the dealers' shops there, but when we look at our overall mix of business, we think refinish certainly at least up to this point, we haven't seen any slowdown there in our growth plans.

Great, thanks for the help.

Thank you. The next question from Ghansham Panjabi, Robert W. Baird. Please proceed with your question.

Good morning. This is actually Matt [Creager] sitting in for Ghansham. How are you guys doing?

Great. How are you, Matt?

Hey Matt. Good morning.

Good, good. My first question is, given the strong results, can you guys describe the flow of business into the second quarter while highlighting any significant new business wins or any potential pull forward from the back half of the year? Just trying to get a better sense of what drove the very strong results?

With regard to second quarter, I think we have talked about in the refinish business in particular, the exact timing from month to month or from quarter to quarter from a demand perspective, the difference of a week or one month one way or the other can make a difference in terms of how much we see from a volume perspective come in, and I think we saw strong volume performance in the second quarter, strong price performance, and then certainly at the variable margin level and fixed costs -- at the fixed cost level, we saw some pretty significant improvements in our business, as we continue to drive Axalta Way through the organization.

And I think in Q3 just given the strength of the performance in the quarter, particular in June, sequentially when we look at the business we thought it might be helpful to provide some guidance on how we see Q3 shaping up, in particular based on the refinish demand patterns that we saw this year.

I would add one comment on that, which is it was not driven by anticipated price increases by distributors or anything like that, but we did see relatively some relatively strong distributor volume as they -- a lot of people contemplated a good strong summer season in a couple of these regions, and I think we are certainly seeing that bear out. But I am like Robert, I think it was prudent to say we believe some of that was just balancing between the end of Q2 and the beginning of Q3.

That is useful, thank you. Considering crude oil's volatility during the second quarter, can you guys describe the raw material cost environment during the second quarter, and then provide your outlook for the back half of the year, broken out between third quarter and fourth quarter?

Overall, Matt, just in terms of raw materials, I think sequentially quarter on quarter, I think we commented that we saw in Q1 modest raw material savings. In Q2 we saw those pick up a little bit. I think that we would still characterize those overall savings as modest. As we look into Q3 of course it is really the prices that you negotiated in Q1, that we're going to see flowing through the financial statements given the lag in inventory and sales that would be going into Q3. The difference between $60 and $40 barrel oil is obviously -- we don't think from a negotiation perspective, is material with our suppliers as was the drop from $100 to $60.

Great. That is it for me. Thanks.

Thanks.

Thank you. (Operator Instructions). The next question comes from Eugene Fedotoff from KeyBanc Capital Markets. Please proceed with your question.

Congratulations on the nice quarter and thanks for taking my questions. Just a follow-up on some of the sales slipping into 2Q from 3Q, can you quantify it for us?

I think what we tried to do there, if you look at the guidance that we provided in our earnings release as well as in our presentation, we tried to indicate from an EBITDA perspective correspondingly about how much of that we would expect to affect Q3. So again, I think from our full year EBITDA we expecting 23% to 25% of that to occur in the third quarter.

Got you. Okay. Just a couple follow-up questions from price increases and performance coatings. Are you seeing your competitors raising prices as well, and your expectations for second year of the year, as far as price, as you expecting more prices being passed through, or prices should sort of stabilize at current levels?

As far as competitors, I can only comment on what we hear and see out in the marketplace, and clearly we see competitors announcing price increases, and as we go through the year. So we can only guess what they are actually getting, but we certainly see the price announcements. I think one of the reasons that we continue to do price increases in this business are twofold. One, we still have certain raw materials that are increasing. We've highlighted before things like pigments, isocyanates, certain products that are -- have different supply/demand dynamics, rather than just oil.

And then second of all, we continue to roll out new coatings, new innovative systems that are priced differently than old ones. So as we go through the year there are all type of actions that are taking place in our portfolio as well as theirs. I do think, though, that as we look at pricing around the world, we continue to raise price across our segments. And again, every segment, every country is a little bit different. It all averages out, but in some cases we are recovering inflation and we are recovering currency, and in other cases just recovering changes in products and raw materials.

I will let Robert comment on any specifics, but we do expect, we are on a normal cadence as we are going through this year. And different brands go at different times. Sometimes we might move after one quarter to another, just depending on what competitors might be doing, or when we are seeing increases in our business, but I would say as we go halfway through the year right now, we continue on our normal cadence. The only exception being in some of the high inflation countries or where we have seen currency changes. And those tend to be economies where we adjust much more frequently anyway, so there is nothing new there, but those cadences tend to be dictated by what is going on with the currencies there. I think as we go through the year, nothing new, and again I think we certainly hear and see out in the marketplace our competitors managing their business probably not too dissimilar than ours. Any comments, Robert?

No, Charlie. I think you covered all of the points.

Thanks for the color. The last question on consulting fees, you are expecting to see more consulting fees in the second half?

Yes, we will continue to see consulting fees in the second half of year as we continue to make our way through The Axalta Way. Year-to-date in terms of one-time costs we have about $30 million in one-time costs. About two-thirds of that is related to severance, and one-third of that is related to consulting. And I think in the back half of the year, we would expect to spend a somewhat similar amount, and then in 2016 we expect that amount to taper down quite significantly.

Thank you.

Thank you. We have reached the end of our question and answer session. I would like to turn the floor back over to management for any further or closing comments.

All right, thank you. Hopefully the presentation this morning was informative. I know it was a little bit lengthy on the front end, but we hope to try to give you most of the information that you would need to update your numbers and your models. Again very pleased with our quarter. And while there are a lot of macroeconomic factors buffeting the year, I would characterize it as we are coming through the halfway mark of the year, that I'm pleased to report Axalta overall is pretty much on plan. Some things up, some things down, but overall we are certainly pleased to see the volume growth, pleased to see the sustained activity we have got on cost management, and in raw material focus.

So to go into the second half of the year I'm really pleased where we are at this point, and look forward to discussing things with you as we go through the next quarter. With that, thank you again, operator, and I appreciate everybody on the call this morning. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.